How Much Should I Save For Taxes If I Just Started As A Contractor?

Starting as a contractor means that you are now considered self-employed and responsible for your own tax payments. It is recommended to set aside a portion of your gross income to cover future tax payments. As a general guideline, setting a savings goal of 20% is a good starting point. However, it is recommended to aim for 30% to 35% of your salary if it exceeds $48,000 to be cautious.

To ensure that you have enough funds to cover your tax obligations, it is important to keep all receipts and invoices for expenses that can be deducted, such as phone bills, tools, safety gear, advertising, stationery, and transportation costs. If you’re a contractor, it’s crucial to protect yourself with contractor insurance. Accidents and incidents can happen on the job, and you don’t want to be caught off guard without adequate coverage. Contractor insurance can give you peace of mind and commercial protection in case of property damage, injuries, or lawsuits.

At the end of the fiscal year (usually March 31), you will be required to have financial records prepared that include information about your income, spending, and net profit or loss from your self-employed business activities. Your income tax liability will be calculated by adding this profit or loss to any other income you have made in your personal income tax return.

In New Zealand, as a contractor or self-employed person, you are required to pay your own taxes and file an individual tax return each year. The tax year runs from 1 April to 31 March the following year. You will need to register for an IRD number, which is a unique identifier for tax purposes, and keep accurate records of your income and expenses.

If you earn more than $60,000 per year from your contracting or self-employed work, you may also be required to register for GST (Goods and Services Tax). This means you will need to charge GST on your services and file regular GST returns with the IRD.

It’s important to note that the tax rates in New Zealand are progressive, which means you will pay a higher tax rate on your income as you earn more. The current tax rates for the 2022-23 tax year are as follows:

  • 5% on income up to $14,000
  • 5% on income from $14,001 to $48,000
  • 30% on income from $48,001 to $70,000
  • 33% on income over $70,000

If you find bookkeeping and taxes uninspiring, you can consider using the services of a tax professional who can take care of everything for you at a set cost. They can also help you with other business-related problems, such as tax debt, cash flow management, and expansion planning. A preferred training provider for services related to business improvement will also assist you in developing and implementing a plan as part of the Regional Business Partner Network Capability Voucher Scheme.